SK hynix is seen to have secured an early lead in the high-bandwidth memory (HBM) market by leveraging a strong partnership with Nvidia in the initial phase of the artificial intelligence (AI) market and pushing long-term agreements (LTAs), but at the same time paying an opportunity cost. As the AI infrastructure investment boom drives up prices for commodity DRAM and for HBM4, the sixth-generation HBM, SK hynix's biggest concern is that a considerable portion of its production lines remains tied to HBM3E, the fifth-generation HBM, whose profitability has declined.
With AI infrastructure investment expected to remain solid into next year alongside the spread of agentic AI, the speed at which SK hynix can shift its production lines to a profitability-focused mix has emerged as a key task. While partnering with Nvidia was the best strategy in the early days of the AI infrastructure market, the market environment has changed faster than expected, bringing the opportunity cost of that early choice into focus.
◇ SK as the former chaser… chose "volume over price"
According to industry sources on the 5th, when the HBM market first began in earnest, SK hynix's top priority was securing stable volume over price. With Samsung Electronics yet to establish full-fledged competitiveness in HBM at the time, SK hynix effectively served as Nvidia's key HBM supplier. Nvidia was also known to have pursued a strategy of preemptively securing production capacity across the AI Semiconductor supply chain, including not only HBM but also TSMC's advanced packaging (CoWoS) and silicon interposers.
The memory industry is a representative capital-intensive sector that requires facility investments on the scale of trillions of won up front. For this reason, the industry says it was more important to secure stable demand to enhance investment visibility than to maximize short-term pricing.
A former SK hynix executive said, "Samsung Electronics, as the incumbent No. 1 in the memory market, could take a relatively conservative strategy, but SK hynix, as a chaser, needed to build a strong supply relationship with Nvidia from the outset," adding, "Because this industry requires heavy facility investment, securing assured volume was a more important strategy at the time than achieving the best price."
That strategy led to the achievement of seizing the HBM market early. SK hynix established itself as a key partner in Nvidia's supply chain and secured leadership in the HBM market, and on that basis was evaluated as the biggest beneficiary of growth in the AI memory market.
◇ The market has changed… the opportunity cost of preempting HBM
But the market changed faster than expected. This year, commodity DRAM prices have surged, and demand for HBM4 from big tech companies such as AMD, Meta and Google is expanding quickly. If securing stable long-term volume with specific customers was a competitive edge early on, the new edge now is how flexibly a company can allocate production capacity across a diverse set of customers and product lines.
In a recent report, market research firm Counterpoint Research analyzed SK hynix's ahead-of-rivals LTAs as one of the factors behind its second-quarter DRAM market share decline. SK hynix posted record quarterly results in the second quarter, but its DRAM market share fell to 26%, while Samsung Electronics, buoyed by rising commodity DRAM prices and HBM expansion, took first place at 39%. In particular, No. 3 Micron, helped by the rebound in commodity DRAM, pulled its share up to 25%, narrowing the gap with SK hynix for the No. 2 spot to just 1 percentage point.
Counterpoint said that while commodity DRAM prices jumped in the second quarter, the HBM market saw average selling prices (ASP) pause temporarily as price adjustments for existing HBM3E products coincided with a transition gap before HBM4 shipments. With a high sales mix of HBM, SK hynix was relatively more affected by these price adjustments, and because of the fixed price structures in the proactively signed LTAs, it could not immediately reflect the windfall from the commodity DRAM price spike to the same extent as its rivals.
◇ Evolving LTAs, the next contest is flexibility
SK hynix maintains that today's LTAs are not the same as the simple fixed-price contracts of the past. On the second-quarter earnings conference call, the company said it designs contract duration and pricing methodology differently depending on customer and product characteristics, and that it operates flexibly so that, while long-term deals secure downside stability in results, it can also capture additional demand and price upside when the market is favorable.
An SK hynix representative said, "Our contracts are long-term cooperative partnerships that consider sufficient profitability in light of cost competitiveness, joint development of next-generation memory, and stable supply."
Samsung Electronics, too, has recently moved to expand five-year rolling LTAs after bargaining power shifted to memory makers amid shortages. The industry views the difference between the two companies as stemming more from their respective positions and strategic choices in the market at the time than from any superiority of the contracts themselves.
A semiconductor industry source said, "For SK hynix, preempting Nvidia's supply chain in the early AI market was the most important task," adding, "Now, the competitive edge lies in how flexibly it can meet HBM4 demand from new customers such as AMD and Meta while stably supplying Nvidia volumes."